> What is the sharemarket?
>?What are GICS sectors?
Types of listed products:
>?Derivatives
>?ETFs
>?ETMFs
>?Hybrids
>?LICs
>?mFunds
>?MINI warrants
>?Options
>?Warrants
>?What is a share?
>?Rights, bonuses and splits
>?Dividends explained
>?What is dividend imputation?
>?Margin lending
>?Key sharemarket ratios
>?Glossary
Warrants
Warrants are a type of derivative issued by a small number of financial instructions. They are traded on the ASX or Chi-X, and settlement occurs through CHESS.
Warrants derive their value from an underlying instrument, including:
> shares
> a basket of securities
> Exchange Traded Funds (ETFs)
> a share price index
> debt instruments
> currencies
> commodities
Warrants give holders the right to buy or sell the underlying instrument to the warrant issuer for a specific price, according to the terms of issue. Warrants are generally categorised as either a trading warrant or investment warrant, although some have characteristics of both.
The following table summarises the key differences between the two:
| Investment warrants | Trading warrants | |
|---|---|---|
| Why are they used? | Borrow to invest in shares and increase exposure to potential capital growth, dividends and franking credits | Trade the rise or fall of shares, indices, commodities and currencies |
| Features | Longer dated and less frequently traded, lower risk/return profile and tend to have a higher initial outlay required | Frequently traded and shorter dates, higher risk/return profile |
| Investment timeframe | Medium to long term | Short term |
| Key benefits | Leverage and no margin calls | Leverage and no margin calls |
| Key investment risks | Leverage can magnify losses | Leverage can magnify losses |
| Used by | SMSFs and individual investors | SMSFs and individual investors |
| Examples | Endowments and structured investment products | Equity warrants, index warrants, barrier warrants and MINI warrants |
Source: ASX
An instalment warrant gives the investor the right to buy the underlying asset with an initial part payment and an optional final payment. Key features of instalment warrants include:
> The investor is entitled to all dividends, distributions and franking credits
> Generally offered over ASX100 securities
> They are an eligible form of gearing for SMSFs.
A MINI warrant is also available as either a trading or investment warrant.
It?s important to note that warrants don?t have standardised terms, although they are limited by the constraints of the ASX Operating Rules and the law.
